Ethiopia: TPLF’s economic argument and its opportunity cost

As incredible as it may seem, Tigray People Liberation Front (TPLF) – the entity that has ruled Ethiopia for 26 years to date – has the international community in its bag with its claim of achieving a year-to-year double-digit economic growth and phenomenal poverty reduction for longer than a decade now. This dubious claim is one of the two atonements with which TPLF appeases the powers that be for the horrific human right sins it commits year round.

The powers that be – the U.S. and Europe in particular – have time and again accepted this claim as a worthy offering and looked the other way as TPLF kills, jails, tortures and dehumanizes its political opponents, journalists, human right activists, and peaceful protesters. If, from time to time, these major funders of the regime condemn its atrocities, they do it in the mildest form possible. Worse still, they undermine any effect their condemnation may have by, with the same breath, lauding the regime for its economic achievements and contribution to the war on terrorism, the other ploy with which the regime fools the world.

Very few Ethiopians fall for the regime’s anti-terrorism posturing, but sadly a significant number of them appear to be willing to give the regime the benefit of the doubt on its economic claims. A slice of them goes to the extent of consciously overlooking or downplaying the regime’s human right violations altogether.

No amount of economic growth can justify the death, arrest or torture of a single individual. Those who think Ethiopians should endure abject injustice, lack of freedom, routine indignity and dehumanization in exchange for economic wellbeing are either associated with the regime, are in some way profiting under the current system, or lack empathy to those who suffered and are suffering the brunt of the regime’s unjust imprisonment, torture, and killings.

That aside, the economic achievement the regime claims to have materialized because of its policies and actions has to be challenged in its own right because the claim, far from being accurate, is a work of deliberate exaggerations and deceptions. More importantly, this alleged growth, even if true, comes at a much higher opportunity cost as will be discussed later.

To begin with, no one can deny that there has been some economic growth in Ethiopia particularly in the last decade. Anyone visiting the country will immediately notice the buzzing construction activity in Addis and other major cities. The life style of some has also changed, for example with more Ethiopians owning a family car, a house or condominium. How much one would be impressed with these and other changes depends on their reference point. For many Ethiopians, their reference point is the Ethiopia they knew decades ago, which naturally magnifies the change they see now. If, however, one uses the rest of the world as the reference point, one would most likely have a much lower excitement if not disappointment about the economic progress in Ethiopia.

Comparative analysis – comparing Ethiopia’s economic performance with others – is important because it will tell us what Ethiopians have potentially missed for what they have gotten under the TPLF regime. But let’s first start with the basic claim the TPLF regime makes in its economic argument, namely Ethiopia’s Gross Domestic Product (GDP) has grown annually by more than ten per cent for more than ten years. As the Economist, citing prominent international economic experts pointed out, this claim is partly a hoax; Ethiopia’s GDP growth at best is half what the regime claims it to be. One need not to believe the statistics, but make note of the several real life indicators, including the very high unemployment rate the regime itself has come to admit in recent times. Given Ethiopia’s population growth rate at around 2.5 percent, had the economy grown by double-digits for over a decade, there would be a much lower level of unemployment in the country today given also the fact that the few key areas of current economic activity such as agriculture, services and public infrastructure are labor intensive.

In Asia and elsewhere, a double-digit economic growth has uniformly generated expanding and well-rewarding jobs for the younger and better-educated generation in particular. Those opportunities almost universally created a great and infectious sense of optimism and confidence about the future of their country. What has happened in Ethiopia since TPLF took power – more so in the last ten years – is quite the opposite. Seeing little opportunity in the hyped domestic economy, tens of thousands of youth are forced to leave their country each year for a precarious life in the Middle East and neighboring Africa countries. The dissatisfaction and discontentment of those who stayed behind meanwhile boiled to the surface, escalating into a widespread popular uprising in the last one-year and a half and panicking the regime into declaring a Martial Law, which is still in place eight months later.

Secondly, the much touted double-digit growth, even if it were true, amounts to much less when measured in per capita terms. For a poor country like Ethiopia, a GDP growth that is not measured in per capita terms is quite deceptive because it does not tell how much it amounts to when divided into one hundred million parts. That is why a recent media coverage about Ethiopia overtaking Kenya to become the largest economy in East Africa is pretty much meaningless. For all that matters, Kenya’s GDP, which when divided among its population is double that of Ethiopia, affords Kenyans a much better living standard financially, with better access to education, healthcare, clean water and reliable electricity.

Likewise, the nominal GDP the TPLF regime reports, even if true, is much less in terms of real goods and services because Ethiopia’s inflation for most part of the last decade and longer has been in double-digits. So much so that the livelihood of salaried people, for example, has not changed much, if at all, despite the pay raises they might have received over the years. The vast majority of the Ethiopian poor and fixed income earners such as retirees actually fare worse today than ten years ago because their purchasing power has declined with the rise in the prices of goods and services. Families that receive remittances from relatives abroad may have weathered the brunt of the inflation, but their relative wellbeing has nothing to do with the alleged domestic economic growth.

Thirdly, one also has to remember that, whatever growth there is, it is mainly financed by other people’s money. The country’s main production sectors – agriculture, manufacturing, and mining are nowhere near generating the level of real economic value and tax base to finance the infrastructure development that is behind much of the GDP growth. The public infrastructure projects – dams, roads, health and education facilities, waste management, you name it – are therefore largely funded by donations and borrowed money. As of March 2016, the TPLF regime had borrowed $21.7 billion (or over 30 percent of the country’s GDP) from external lenders. Including domestic borrowing, this figure rises to close to $40 billion (or over 54 percent of GDP). Ethiopia is one of 36 poor countries whose international debts reached unmanageable and unsustainable levels that the World Bank, IMF, and other lenders had to put together a debt reduction program under the Heavily Indebted Poor Countries (HIPC) Initiative.

If the swelling debt is worrisome, corruption is a bigger problem in Ethiopia today. The absence of transparency, independent audit, and accountability means a good portion of the borrowed and donated money is siphoned off directly or indirectly by the endemic corruption and thievery at the top level of the TPLF regime. According to the UN’s Global Financial Integrity, an average of $2-$3 billion is leaked out of the country each year through various forms of illicit financial flows. The total amount illicitly leaked out of the national economy estimated to be $30 billion is equal to the total donations the regime received from the United States since it came to power.

Corruption is a common phenomenon anywhere there is a lack of democracy and rule of law, but TPLF has elevated it into a politically sanctioned crime. Ccorruption and rent-seeking activities are systematically instituted to result in an inequitable distribution of income and wealth in a manner that reinforces TPLF’s political hegemony. There is no clearer indicator of this than the fact that Ethiopia is perhaps the only country where a ruling party owns a business empire as big as the so-called Endowment Fund for the Rehabilitation of Tigray (EFFORT). Started with stolen and robbed resources from TPLF’s rebel days and later boosted by hundreds of millions of uncollectable loans from Ethiopia’s commercial and development banks, this conglomerate currently owns two dozen companies collectively worth over $3 billion. If this is not enough, TPLF also runs the Tigray Development Association (TDA) and Relief Society of Tigray (REST) each of which owns several thriving business companies.

Fourthly, whatever growth has been achieved, it has not moved the needle, so to speak. Ethiopia is still one of the poorest countries in the world, 172nd in GDP per capita, only ahead of 13 largely war ravaged African countries. It fares worse on the multidimensional poverty index that measures the percentage of people impacted by an array of poverty factors. It is at the bottom of a list of 102 developing countries only besting Niger, South Sudan and Chad. In 2014, a third of Ethiopians lived under the global poverty line, i.e., with under $1.25 a day.

To this day, Ethiopia relies on global donations to feed millions of starved people (about 8 million this year; 10 million the previous year). At the best of times, a third of Ethiopians are malnourished. TPLF brags about improving the logistics of begging and distributing international food aid, forgetting most every other nation on the globe is either food self-sufficient or has the economic and financial capacity to procure food from anywhere in the world to meet domestic needs and demands without much fanfare.

While such is the grim reality, the TPLF regime sells the promise of moving the country into the middle-income group by 2025, something that amounts to not much even if it were genuine. Currently there are only 31 countries in the entire world, which the World Bank categorizes as low income. The rest of 181 countries are either middle (102) or high-income (79) countries.

Moving out of the low-income category is not therefore something to brag about not only because the vast majority of the countries in the world don’t belong there anyway, but also many of the lower-middle-income countries are themselves poor. The middle-income category is so wide (ranging from $1026 to $12, 475 GNI per capita) that one has to move into the upper middle-income category to be out of abject poverty in a decisive way. Ethiopia will have to almost double its current GNI per capita ($590) to barely reach the threshold of the lower-middle income group – a tall feat for a corrupt and inept regime like TPLF to deliver – let alone reach middle of the way in that income bracket.

Finally, as a minority repressive regime, TPLF will never guarantee political stability, which is a necessary condition for economic security that is in turn a prerequisite for a sustained growth. There more economic insecurity today than at any time in the past. A small segment of the population, who are ethnically and politically connected to the regime, are doing fantastically well. However, since the regime cannot guarantee the security of their economic fortunes, they fear they can lose it all as fast as they gained it. This is a reasonable fear because any wealth or asset built through political favoritism can be an easy target for destruction during a popular uprising or nationalization when a new political system is established. This fear will exacerbate the capital flight that has already begun and is bound to slow down investment and growth in the country.

The opportunity cost of TPLF’s alleged growth

To argue that TPLF’s economic growth is exaggerated, inequitable, debt-ridden, etc., is to tell only half the economic story. The other half that needs more attention is the opportunity cost of this alleged growth. In economics, the opportunity cost of a given choice or action is defined as the value or the benefit that could be had if the resources committed to that choice or action were used to accomplish the best alternative choice or action there is. In other words, opportunity cost is the best alternative we gave up in order to pursue a given choice or action.

Given the rampant corruption, political favoritism, and economic incompetence and mismanagement under the TPLF regime, it will not be hard to find examples of major public projects where the opportunity costs were higher than the benefits from those projects. A good example could be the Abay hydro dam which TPLF hopes to use as a source of foreign exchange by selling the electricity generated to neighboring countries. In the absence of accountability and the entrenched corruption and thievery within this regime, there is a justifiable fear that the full amount of the proceeds from the export of electricity will not accrue to the public coffer.

Even if the country were to capture the full benefit of the Abay dam, a better alternative would be to invest the resources now committed to the Abay Dam for generating a stable and affordable electricity supply for the tens of millions of Ethiopian households who currently live in the dark and the countless small and medium size manufacturing businesses whose production capacity is hamstrung by the endemic power shortage. Access to electricity, like access to education, clean water, and healthcare would be a great equalizer across economic, social and political classes. The combined social, environmental, and economic benefit of this alternative would far outweigh the uncertain benefit of the Abay Dam.

At a macro (national) level, the aggregate opportunity cost of TPLF’s economic performance can be assessed indirectly and roughly by comparing Ethiopia’s key economic indicators with those of comparable countries in Africa and elsewhere in the world. Twenty-six years later, TPLF is often heard measuring itself against the Derg, which is an idiotic comparison, not only because the times and the circumstances are far apart, but also because the Derg, far from being the best alternative, is one of the worst regimes in Ethiopia’s history. Even then, if one had to compare the two regimes, TPLF would likely not be a clear winner; in fact, one could argue the Derg would have done better had it have the massive international financial support and relative political stability TPLF has enjoyed. Anyhow, this is not a point to dwell on here.

Instead, in what follows TPLF’s performance is compared with that of other contemporary regimes. First, Ethiopia’s GDP per capita is contrasted with five other comparable (low and lower-middle income) African countries (Ghana, Zambia, Tanzania, Uganda, and Kenya) using World Bank data. None of these countries make frequent economic headlines as Ethiopia does, yet, except for Uganda – incidentally a country that is ruled by longstanding tyrannical regime akin to TPLF – the other four countries outperform Ethiopia, not just in absolute terms but in their year-to-year GDP per capita growth too. This is evident from the widening gaps between Ethiopia’s GDP per capita and those of the other four countries as one moves from 1993 – when TPLF took total state control in Ethiopia – to 2015.

GDP per capita, PPP (Constant 2011 International $)

TPLF’s mediocre economic performance is more revealing when one compares Ethiopia’s GDP per capita growth with five developing Asian countries whose economic performance is seldom a headline, not as much as that of Ethiopia anyway. Ethiopia’s GDP per capita growth trails those of these countries by a widening margin over TPLF’s reign.

GDP per capita, PPP (Constant 2011 International $)

It is important to note that almost all of the above African and Asian countries were able to achieve higher economic growth, some of them moving to the middle-income category, in less time frame than TPLF has been in power.

Finally, Ethiopia’ is one of 48 countries the United Nations labels as Least Developed. Ethiopia is also one of 60-plus countries whose lack creditworthiness only makes them eligible for concessional credits and grants from the International Development Association (IDA). As mentioned above, Ethiopia is also one of three dozen, Heavily Indebted Poor Countries (HIPC).

Comparing Ethiopia’s GDP per capita growth with these groups and Sub-Sahara Africa reveals the same story. Not only is Ethiopia’s GDP per capita significantly lower than the average for anyone of the four groups, except for the HIPC group, Ethiopia is not catching up with the economic performance of the other three groups over time. In fact, the gaps are wider in 2015 than they were in 1993, a resounding verdict for TPLF’s poor performance.

GDP per capita, PPP (Constant 2011 International $)

A political solution for a poor economic performance

Politics and economics are intertwined in any organized society. In Ethiopia, today, the two are almost inseparable on so many levels: The TPLF regime controls all the real estate in the country, urban and rural land included; it is the largest employer; the largest procurer and the largest borrower. TPLF owns many of the biggest corporations that are major players in the national economy. Contrary to its pretense, the regime is fundamentally anti free enterprise. Politics rules every inch of economics.

The regime uses its political power to punish its opponents economically – individuals, groups, regions alike. It discriminates against regions that put up political resistance or support opposition parties in the allocations of public infrastructure; systematically undermining investments by certain private businesses in certain areas; and even by withholding medical and humanitarian support to “unfriendly” regions.

The ethnic political system has created a lack of security to private property, severely limiting inter-regional investment, trade, and tourism, hence also inter-regional transfer of entrepreneurial skills and business knowhow, all of which are essential for a sustained national economic growth. These economic opportunities have been lost over the past 26 years because they do not fit TPLF’s divide and conquer political paradigm.

Worse, the economic consequences of TPLF’s politics will outlast its life span. For example, the best resource any nation can have for economic growth is its human capital, a resource that is lost the fastest in a political system that stifles freedom of thought, creativity, entrepreneurship, and human development. Under TPLF’s tenure, Ethiopia has lost and continues to lose the cream of its educated and skilled manpower in all disciplines without exception. TPLF has systematically robbed Ethiopians the pride, security, and ownership of their country and have turned them into migrants and exiles. One cannot put enough economic value to this massive brain drain that will take a very long time to turn around.

There are bigger socio-political damages TPLF has inflicted on Ethiopia and Ethiopians. Their costs are incalculable. But on economic grounds alone, TPLF is not qualified to rule Ethiopia for a single day. Fundamentally, Ethiopia cannot prosper economically under a regime that is anti-Ethiopian politically. The solution is to remove it from power. Ideally, this would take place peacefully through the free will of the people, something TPLF will not allow to happen. The Ethiopian people are hence left with the only other choice – to remove it forcefully.